The Overnight Report: Stalemate

This story features PREMIER INVESTMENTS LIMITED, and other companies. For more info SHARE ANALYSIS: PMV

By Greg Peel

The Dow closed down -35 points or -0.2% while the S&P is flat at 2294 and the Nasdaq rose 0.2%.

In Fashion

After a stumbling start for the ASX200 yesterday it looked like we could be in for another fairly subdued session, but it wasn’t to be. From mid-morning the index tracked steadily higher and ultimately reclaimed the 5650 mark.

Banks led the way after having faltered on Tuesday, rising 1.0%. Gains in other sectors were relatively uniform with the exception of utilities, which seems to rise and fall on consecutive days and fell -0.8% yesterday, energy (-1.0%) on the lower oil price, and materials (-0.1%) as profits were taken in some of the goldminers.

Beyond that, it was a day of individual stock stories, and in particular, long-struggling clothing brands. In the ASX200, Premier Investments ((PMV)) announced a guidance upgrade that had its stock up 12%, and Specialty Fashion Group ((SFH)), not in the index, jumped 26% on a takeover bid from the Qatari royal family, owners of Harrods.

Outside of fashion, Seven Group Holdings ((SVW)) won the day in the index with a 14% jump thanks to a rating and target price upgrade from Goldman Sachs, the broker anticipating a rebound in resource sector demand for the group’s mining equipment business. There are also rumours Seven Group may team up and provide the funds needed for Beach Energy ((BPT)) to acquire Origin Energy’s ((ORG)) upstream business – a business analysts see as a perfect fit for Beach.

Among yesterday’s earnings reporters, Carsales.com ((CAR)) was the star and enjoyed an 8% rally. It is always dangerous to underestimate the Big Three online classifieds businesses ahead of reporting season. On the other side of the ledger, a miss from Genworth Mortgage Australia (-15%) may be indicative of a housing market now beginning to cool.

The big result release on the day was of course that of Rio Tinto ((RIO)). The miner returned to profit, showered shareholders with a surprisingly big dividend increase, and threw a bucket of cold water over them with a surprisingly small buyback announcement. Rio shares struggled up 0.8%, only to be offset by a -0.9% fall in BHP Billiton ((BHP)) which has run into environmental issues in the Pilbara.

BHP is also presently dealing with mineworkers at Escondida who have rejected the latest offer and gone on strike, just as they do every time the copper price has a rally.

Another Day…

…another quiet one on Wall Street, which continues to track sideways. It’s now been 81 sessions since the S&P500 fell a percent or more. No one is game to buy it at new highs until more detail is known of Trump’s policies, while no one is prepared to sell it lest that detail proves as positive as hoped.

Stalemate. And it could be some time before some of the bigger policies see the light of day as legislation, if at all. Just how patient can Wall Street be?

In the meantime, the US ten-year bond yield has been slipping – down -4 basis points to 2.35% last night having pulled back from a recent 2.5%. To explain newfound strength in US bonds, most commentators have pointed at France.

French bonds are being sold off presently as the upcoming French election becomes ever more uncertain. The initial front-runner has been found out for having put his wife on the payroll to do nothing, and now it turns out the young upstart, who had emerged from the sidelines, is married to his school teacher. All the while Marine Le Pen gains traction in the polls.

Not that anyone is going to be foolish enough to believe polls anymore. But if America can elect Trump, the French can elect Le Pen, and that means Frexit.

And Frexit signals the beginning of the end of the ill-thought out experiment known as the European Union. Brexit was, of course, a trigger, but Britain still has the pound. France is in the eurozone.

The pullback in US bond yields weighed on US bank stocks last night. The banks had shot up again last Friday night when Trump signed an order to review Dodd-Frank, but word is a full repeal and replacement of the bill is unlikely to be achieved in Congress — another reason the banks were weaker.

Despite a few ups and downs, Wall Street is simply banging along going nowhere. Earnings season is winding down. Fed-watching is not as requisite a sport as it used to be. The same issue keeps coming up again and again: tax reform – when will it happen?

The fact that the real question is “will it happen this year?” does not bode well for Wall Street to break out of its stalemate for quite some time. It will probably take something altogether different to break the deadlock. Like France.

Meanwhile, the Dow rose 35 points on Tuesday night, fell -35 points last night, and the S&P was flat on both sessions.

Commodities

The US dollar index is flat at 100.27 but between strikes in Chile and mine shutdowns in the Philippines, copper was up 2% in London last night and nickel 1%, while aluminium rose 1% and lead and zinc 2%.

Iron ore rose US60c to US$82.80/t.

Gold continues to sparkle, rising another US$6.40 to US$1239.70/oz.

West Texas crude rose US26c to US$52.43/bbl.

The Aussie is steady at US$0.7634.

Today

The SPI Overnight closed down -1 point.

The RBA governor will speak today, new home sales numbers will be released, and NAB will provide a December quarter summary of its business confidence survey.

On the earnings front, AGL Energy ((AGL)), AMP ((AMP)) and Suncorp ((SUN)) are among the reporters.

Rudi will show up on Sky Business twice today. having just returned from sunny Perth, he'll co-host first from 12.30-2.30pm and later on re-appears for an interview on Switzer TV, but not by Peter Switzer.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms